Building material costs rising for new homes

Prices for drywall, concrete and lumber are continuing to increase throughout the nation. (Joshua Lott, Reuters)

Just as the housing market is on the mend, prices for drywall, concrete and lumber are fast outpacing inflation.

At a time when inflation is running about 2 percent, lumber prices throughout the country are up 35 percent from a year ago, according to the National Association of Home Builders.

The cost of interior walls for new homes has increased more than 14 percent from November 2011, according to a recent report from the Associated General Contractors of America. And suppliers of that drywall, also known as gypsum board, have put builders on notice that those prices may spike an additional 30 percent in 2013.

"We did get notice the gypsum board would be going up a substantial amount, and we are seeing pricing pressure from other suppliers and from labor," said Ken McDonald, president of David Weekley Homes' Orlando, Fla., division. "It's a balancing act. We will be raising prices to cover the increases."

The pressure on prices is mainly the result of two things: rising demand from homebuyers eager to take advantage of record-low mortgage interest rates, and supply problems because of the shutdown of manufacturing plants in recent years.

McDonald said the price increases also reflect a home-construction industry that is trying to rebuild its profit margins, which were decimated by the housing slump and Great Recession.

"Pricing all went to an all-time low, and now business is trying to get their margins back," McDonald said.

Nationally, new-home prices hit a peak of $257,000 in April 2006 and a low of $205,000 in March 2009, according to the U.S. census. Since then they've been creeping up.

Anirban Basu, chief economist of Associated Builders and Contractors, said he expects prices nationally to stabilize eventually, though the near-term effects of higher prices could dampen the recovery of the new-home market.

"I think it will slow the housing recovery, because new-home buyers are very price-conscious," Basu said. "What builders might do is move their product to be more upscale. Affluent buyers are more likely to spend 5 to 10 percent more to get what they want. Value-oriented buyers are more likely to purchase an existing home."